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Did you know there was a difference between good debt and bad debt? There is such a difference, despite the fact that creditors will try to tell you that all debt is bad debt. I suppose it is for them because it reduces their profits, but the same rules don’t apply in your case.

You Will Need:

• Your Financial Planner.
• Paper and pens.
• A telephone.

Step 1

Get down to work. These are your priorities when it comes to debt. A) Food. Use your financial planning software to ascertain how much you spend on groceries.

Step 2

Your second priority is B) Housing. Calculate what your monthly housing or mortgage costs are. Be sure to include the necessary extras like insurance.

Step 3

Your third priority is C) Utilities. This means gas and electricity and possibly telephone. Again calculate your monthly costs.

Step 4

Your third priority is d) transportation. Calculate your monthly transport costs.

Step 5

You now have a set of figures that gives you your position. If you have to get into debt to pay these that would be considered good debt.

Step 6

Now see how you can reduce costs in this sector. Food costs can be reduced once you stop buying convenience foods. Cook from scratch using fresh fruit and vegetables. It’s much cheaper and besides it’s healthier. Your rent or mortgage payments are very important because the outgoings keep a roof over your head! A mortgage is doubly good debt because historically speaking houses increase in value over time. However, there might be ways to reduce costs in this area. So check it out! Check your utilities, turning the heating down a few degrees and setting the a/c thermostat at a higher level can reduce bills. Are all those cell phones really necessary, when more often than not is cheaper to make a call from a landline? How about transportation, How can you reduce costs here? The idea is to have debts in this priority area at a manageable level.

Step 7

Make a list of your assets. These include things like valuables in the sense of jewelry, stocks and shares, collectibles and antiques, If you have generated debt to pay for any of these, that can be considered good debts as these items are likely to increase in value. They need to be protected.

Step 8

Debt incurred in order to improve yourself and increase earnings in the form of student loans etc, can be considered good debt and need to be protected.

Step 9

The rest is bad debt and you can let it go. OK expect pressure from creditors of unsecured loans. This will hurt your credit rating, but it is not the end of the world there are ways to retrieve matters and settle in a way that can frequently be beneficial to you.

Tip: It is always easier to deal with mortgage lenders and providers of car loans. These loans are secured. They can come and take the property back from you. Unsecured creditors have no leverage except to sue. Therefore, done cleverly it is possible to write off a lot of this debt without painful loss to yourself! Overall you have not taken money from anyone by resorting to this tactic. The lender created the money when you incurred the loan. It was created from nothing. As a result you instigated the capital which you have to pay back and you created the interest. In short you are making a lot of money for the bank or Credit Card Company. Your default effects them, because it hinders them from making more loans, that’s all!. By the way they don’t like you to know this!

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